CenterPoint Energy 2013 Annual Report Download - page 53

31
impact of energy conservation efforts, technological advances affecting energy consumption and the extent of governmental
regulation and taxation.
Enable’s keep-whole natural gas processing arrangements expose it to fluctuations in the pricing spreads between NGL prices
and natural gas prices. Under these arrangements, the processor processes raw natural gas to extract NGLs and pays to the producer
the natural gas equivalent Btu value of raw natural gas received from the producer in the form of either processed natural gas or
its cash equivalent. The processor is generally entitled to retain the processed NGLs and to sell them for its own account. Accordingly,
the processor’s margin is a function of the difference between the value of the NGLs produced and the cost of the processed natural
gas used to replace the natural gas equivalent Btu value of those NGLs. Therefore, if natural gas prices increase and NGL prices
do not increase by a corresponding amount, the processor has to replace the Btu of natural gas at higher prices and processing
margins are negatively affected.
Under Enable’s percent-of-proceeds and percent-of-liquids natural gas processing agreements, the processor generally gathers
raw natural gas from producers at the wellhead, transports the natural gas through its gathering system, processes the natural gas
and sells the processed natural gas and/or NGLs at prices based on published index prices. The price paid to producers is based
on an agreed percentage of the actual proceeds of the sale of processed natural gas, NGLs or both, or the expected proceeds based
on an index price. These arrangements expose Enable to risks associated with the price of natural gas and NGLs.
At any given time, Enable’s overall portfolio of processing contracts may reflect a net short position in natural gas (meaning
that it is a net buyer of natural gas) and a net long position in NGLs (meaning that it is a net seller of NGLs). As a result, Enable’s
gross margin could be adversely impacted to the extent the price of NGLs decreases in relation to the price of natural gas.
Enable has limited experience in the crude oil gathering business.
In November 2013, Enable commenced initial operations on a new crude oil gathering pipeline system in North Dakota’s
Bakken shale formation, and Enable expects to place additional related assets in service in 2014. The gathering system, located
in Dunn and McKenzie Counties in North Dakota, has a planned capacity of up to 19,500 barrels per day. These facilities are the
first crude oil gathering system that Enable has built and operated. Other operators of gathering systems in the Bakken shale
formation may have more experience in the construction, operation and maintenance of crude oil gathering systems than Enable.
This relative lack of experience may hinder Enable’s ability to fully implement its business plan in a timely and cost efficient
manner, which, in turn, may adversely affect its results of operations and its ability to make cash distributions.
Enable provides certain transportation and storage services under long-term, fixed-price “negotiated rate” contracts that
are not subject to adjustment, even if its cost to perform such services exceeds the revenues received from such contracts, and,
as a result, Enable’s costs could exceed its revenues received under such contracts.
Enable has been authorized by the FERC to provide transportation and storage services at its facilities at negotiated rates.
Generally, negotiated rates are in excess of the maximum recourse rates allowed by the FERC, but it is possible that costs to
perform services under “negotiated rate” contracts will exceed the revenues obtained under these agreements. If this occurs, it
could decrease the cash flow realized by Enable’s systems and, therefore, decrease the cash it has available for distribution.
“Negotiated rate” contracts generally do not include provisions allowing for adjustment for increased costs due to inflation,
pipeline safety activities or other factors that are not tied to an applicable tracking mechanism authorized by the FERC. Successful
recovery of any shortfall of revenue, representing the difference between “recourse rates” (if higher) and negotiated rates, is not
assured under current FERC policies.
If third-party pipelines and other facilities interconnected to Enable’s gathering, processing or transportation facilities
become partially or fully unavailable for any reason, Enable’s results of operations and its ability to make cash distributions
could be adversely affected.
Enable depends upon third-party natural gas pipelines to deliver natural gas to, and take natural gas from, its transportation
systems. Enable also depends on third-party facilities to transport and fractionate NGLs that are delivered to the third party at the
tailgates of the processing plants. Fractionation is the separation of the heterogeneous mixture of extracted NGLs into individual
components for end-use sale. For example, an outage or disruption on certain pipelines or fractionators operated by a third party
could result in the shutdown of certain of Enable’s processing plants, and a prolonged outage or disruption could ultimately result
in a reduction in the volume of NGLs Enable is able to produce. Additionally, Enable depends on third parties to provide electricity
for compression at many of its facilities. Since Enable does not own or operate any of these third-party pipelines or other facilities,
their continuing operation is not within its control. If any of these third-party pipelines or other facilities become partially or fully